| CATEGORY: FX |
FX Morning update - Euro and sterling hit by risk concerns |
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By Michael Hewson
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Thu 25 Feb 2010
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LONDON (SHARECAST) - The dollar initially slipped back after Federal Reserve Chairman Bernanke reiterated the Federal Reserve’s stance of lower rates for an extended period.
As if to underline this stance, an unexpected slump in new home sales for January to an all-time low, helped underline that the “nascent” recovery requires continued low rates.
Bernanke’s testimony helped overshadow the political and social turmoil in Greece yesterday, as the country walked out on a general strike in protest at the austerity measures due to be implemented by the Greek government.
The strike shut down air, rail and maritime transport in Greece with no flights in and out of the country's airports, and train, bus and ferry services also cancelled nationwide.
If evidence were needed of the rocky road ahead then TV pictures of rioting protestors in Greece provided it yesterday. This turmoil helped undermine the Euro as it fell back towards 9 month lows overnight.
Reports from Moody’s Investors Service and Standard & Poor’s also weighed on sentiment, when they stated they may downgrade Greece’s credit rating again, within months, unless measures were taken to restore credibility to Greek finances.
The managing director of sovereign risk at Moody’s, went even further when giving an interview in Tokyo today, when he said its “pretty likely” Greece’s sovereign debt rating may be cut within months.
Sterling was also undermined after Monetary Policy committee member Adam Posen reiterated Governor Mervyn King’s remarks about keeping the door open for renewed quantitative easing. This dovish stance contrasts starkly with other central banks that are looking at measures to rein back on stimulus.
The pound was also hit on the back of a report by UBS that the pound could hit $1.05 against the dollar if spending cuts were implemented too quickly.
Investors will now shift their focus to this Friday’s Q4 GDP adjustment which is expected to show a slight revision higher to 0.2%.
EURUSD – the Euro has been damaged again by talk of ratings downgrades and social unrest in Greece and has slipped below its 61.8% Fibonacci support at 1.3485, in Asia this morning. This remains the key obstacle to further declines. A daily close below 1.3485 could well be the signal for further losses and the move towards 1.3200. While the market is able to hold above this level it could well be susceptible to bounces back towards 1.3750.
GBPUSD – the pound has fallen below last weeks lows of 1.5350 to fresh 9 month lows on the back of renewed concerns about the UK’s own fiscal position. The UBS report probably hasn’t helped either, however the next target remains around the 1.5270 level initially, which is a 50% retracement of the up move from last years lows at 1.3500 to the highs at 1.7045, and then trend line support from the 1.3500 lows, at 1.5185/90.
EURGBP – The negative news from both Europe and the UK has rather balanced out on the cross here with the 200 day moving average proving to be a somewhat formidable barrier to further Euro gains. While below this important 0.8825 level the downside risk for the Euro pre-dominates.
USDJPY – risk aversion has continued to help the yen overnight with declines yesterday afternoon and overnight sending the dollar towards the bottom of the daily Ichimoku cloud at 89.30. Further losses towards 88.50/60 could occur while investors remain concerned about further setbacks in sentiment. Resistance should be found around 90.20/30 area.
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